SUMMARYThe Committee had intended that the meeting should bring closure to issues
pending since 2005. The attendance of the Minister of Minerals and Energy was
therefore considered crucial. Meetings had been postponed a number of times as
a result of the Minister’s non-attendance, and the Committee was becoming
despondent about the delay in reaching finality.

The export of diamonds without the payment of export duties was a point of
contention, particularly as local beneficiation was government’s main
objective. The Diamond Act made it clear that diamonds should only be exported
once local avenues have been exhausted, but the conclusion of an agreement
between De Beers and the Diamond Board had led to the export of tons of
diamonds. There was no documentary evidence of such an agreement between De
Beers and the Diamond Board. The only evidence that existed pertains to a Board
resolution taken in 1992. There was a request for De Beers to be summoned to
appear before SCOPA, so that the matter could be clarified.

MINUTESMs A Dreyer (DA) expressed her dissatisfaction at the absence of the
Minister. She did not want the Committee to create the impression that
non-attendance was viewed lightly. In the past, meetings with the Minister had
been postponed on a number of occasions, and with a wide range of excuses from
the Minister’s office. This should have been the last of the series of efforts
to engage the Minister. Some people had heard the night before that the
Minister would not be attending, but the majority had only been informed that
morning. If the Minister had given timeous notice of her non-attendance, the
meeting could have been postponed as its main purpose was to hold discussions
with the Minister herself.

Mr D Gumede (ANC) said that it was unfortunate that the Committee was not
informed well in advance, but that the matter on the table was whether or not
the accounting authority could account fully with regard to the matter before
the Committee. If the accounting authority present could account fully in the
absence of the Minister, they should be allowed to do so. If the Committee was
dealing with stewardship of the Department, the correct accounting authority of
the Department was indeed present. The Chairperson of the Diamond Board was
also present, and he was the correct accounting officer for the Diamond Board.
If any member of the delegation was of the view that they could not account for
certain matters, they should say so. If the intended discussion pertained to
changes in policy, the meeting could not proceed without the Minister. However,
if the matters to be discussed did not relate to changes in policy direction,
the delegation present could provide an adequate account.

Mr E Trent (DA) said that he did not feel the delegation could account for the
most crucial issues.

Mr Sandile Nogxina (Director-General, Department of Minerals and Energy) said
that he would like to submit two apologies. The first apology was for his
absence from the previous hearing, due to circumstances beyond his control. His
absence was definitely not out of disrespect, as he had a high regard for
parliamentary committees, and many people could attest to this.

Mr Nogxina said that he also wished to extend an apology on behalf of the
Minister, Ms Buyelwa Sonjica, who had taken ill during last week. He regretted
that the Committee was not informed in time.

The Chairperson said that the meeting was being held from 09h00 to 10h00 because
the Minister’s office had indicated that she would be available during this
specific time. He did not want to spend too much time on discussing the
Minister’s non-attendance, and the Committee should proceed with interaction
with the delegation.

Mr P Gerber (ANC) said that there were certain matters that had been dangling
in the air for a long time, and that finality was desperately needed. He
referred to a briefing document from the Minister and said that diamonds valued
at R820 million were sent to London. This shipment was not accompanied by
payment of export duties. There was no documentary evidence from the Diamond
Board stating that it had authorized such a large shipment. If one took the
basic weight of a carat, then it would be 3.99 tons of uncut diamonds that had
left the country. The export of uncut diamonds had come to about R1.8 billion
each year, but this amount had risen to R4, 6 billion in 1992.

Mr Nogxina said that the root of the problem being faced could be found in the
interpretation of the provisions in Section 39 of the Diamonds Act. Section 63
of the Act was clearly designed as a carrot-and-stick mechanism to encourage
diamond producers to fulfill their obligations in terms of local beneficiation.
Section 63 further required producers to offer their diamonds to local cutters.
If there was no buyer, the producer would have to enter into an agreement with
the Diamond Board, subject to the provisions of Section 39 of the Act.
According to this section, once the Board is satisfied that the efforts aimed
at local beneficiation had been exhausted, the Board could then allow for the
diamonds to be exported without the payment of export duties. However, the Act
itself did not describe the formalities on how agreement should be entered into
between the parties concerned.

Mr Nogxina said that examination of the Board records showed that some of the
agreements, from 1998 up to 2004, were indeed written up in accordance with the
provisions of Section 39. The Department could not, however, lay its hands on
any copy of such agreements before 1998. The closest thing that was found was
the Board resolution of 3December 1992. Interestingly, this Board
resolution contained what appear to be the terms and conditions of a new
agreement which was entered into between the Board and De Beers. It was in
terms of this Board resolution that all unpolished diamonds produced by De
Beers would be exported free of export duties.

Mr Gumede asked whether the South African Revenue Service (SARS) was not
concerned by the non-payment of export duties.

Ms C Smit (Specialist Tax and Legal Advisor, SARS) said that SARS has no legal
standing on the issue, as it has never been mandated to collect export duties
on uncut diamonds.

Ms Smit that the law did not give precise and specific directions on how
diamonds should be offered locally, and confirmed that it was not clear on the
nature of agreements to export diamonds.

Mr Nogxina said that the lack of clarity in the Bill with regard to these
issues had led to attempts to tighten up the law. The Diamond Export Levy Bill,
which was initially called the Beneficiation Bill, was currently before
Parliament for consideration.

The Chairperson asked for an account of diamonds that appeared to have been
looted out of the country by De Beers.

Mr Trent said that the Committee should refrain from terminology such as
“looted” as the issue being discussed was a legal matter.

Mr Gerber compared the situation to what took place in Namibia in the period
just before its independence, when uncut diamonds were also exported for
stockpiling.

Mr Nogxina said that an untenable situation had arisen. Section 3 of the
Diamonds Act enjoins the Minister to appoint a Board whose members were mainly
drawn from the diamond industry, which the Board was supposed to regulate. A
clear conflict of interest has been created where the referee and the player
was one and the same person. Several legal opinions have been sought on the
matter, and a number of investigations have been carried out in relation to the
provisions of Section 39. In June 2001, the Chairperson of the Diamond Board
was given a specific mandate from the Minister to clean up the Board, in light
of the conflict of interest aspect.

Mr Nogxina said that the Committee could summon any entity to appear before it.
The Committee should therefore summon De Beers, and request a copy of the new
agreement that was entered into between De Beers and the Diamond Board.

Mr Abbey Chikane (Chairperson, Diamond Board) said that he had personally written
to De Beers, who had replied that there were no agreements prior to the
resolution of December 1992.

Mr Trent said that there was clearly no documentary evidence of an agreement,
and that the entire matter was based on a resolution taken at a Board meeting.
He was uncertain whether or not a Board decision is legally binding.

Ms Dreyer said that the Committee should request a copy of the Board minutes.

Mr V Smith (ANC) said that De Beers must be held to account. He repeated the
call for De Beers to be summoned to appear before the Committee, and added that
perhaps the Minister of Finance should also be present at the meeting.

The Chairperson said that the way forward had to be determined without delay.

The meeting was adjourned.

Appendix 1:

Sixty-Second Report of Standing Committee on Public on
Public Accounts: South African Diamond Board, dated 14 September 2005:

1.Introducion

The Standing
Committee on Public Accounts, having heard and considered evidence on the
Annual Report and the Report of the Auditor-General on the financial statements
of the South African Diamond Board (Board) for the year ended 31 March 2003/
2004 tabled in Parliament and reffered to it, reports as follows:

2.Investigation relating to the export and
sale of diamonds in terms of the Diamonds Act, 1986 (page 29-31 of the annual
report)

The Committee noted with concern
the significant weaknesses highlighted in the audit report with regards to the
export and sale of diamonds. The following issues were raised:

a.validity of exemptions given under section 63 of
the Act to diamond producers and dealers by virtue of agreements entered into
in terms of section 59 of the Act;

b.limited documentation for Section 59 agreements;

c.the drastic decline in export duties;

d.differences and disputes between the Government
Diamond Valuator (GDV) and the SA Diamond Board relating to the role and
functions of the GD; and

e.The length of time the above issue remain
unresolved.

Having heard and considered the
views of National Treasury, SA Diamond Board, the Department of Minerals and
Energy and the Auditor-General, the Committee is of the view that this matter
has been unduly prolonged.

The Committee is aware of the
many administrative initiatives to resolve these issues but notes the failure
of these to produce positive result.

The Committee therefore
recommends that:

a.the relevant state institutions initiate legal
proceedings with a view towards resolving the section 59 exemption in question
– a special meeting should be convened by the Auditor General for this purpose
within 30 days after this report has been adopted by Parliament;

b.the Board ensures that all South African
produced diamonds be valued in SA on a fair market basis;

c.the Board strengthens its efforts to increase
local beneficiation of SA diamonds; and

d.the Board confers with the Department of
Minerals and Energy to finalise and implement the new legislation.

The Committee expresses its
disappointment at the inadequate representation from the Department of Minerals
and Energy at the hearing and insists that future representation be at an
Accounting Officer level.

Conclusion

The Committee requests the Board
to furnish it with a progress report covering all the above-mentioned issues
within 60 days after this report has been adopted by Parliament.

Cape Town - MPs are considering whether to call De Beers to give evidence to
the financial watchdog committee on public accounts on how it came suddenly to
export huge numbers of uncut diamonds shortly before apartheid officially ended
and the new democratic government came to power.

The committee was told yesterday that the export of uncut diamonds each year
amounted to about R1.8 billion, but that in 1992 there was a sudden spike to
R4.67 billion. But the Diamond Board said it had not been able to discover a
copy of any agreement allowing the export of diamond without payment of the
export levy.

It had no copy in its files, according to Abbey Chikane, who chairs the board.
And when the board wrote to De Beers asking for the company's copy, all it
received was a copy of a board resolution on the subject.

The chairman of the committee, Themba Godi, asked: "Where is the agreement
that allowed De Beers to loot the diamonds out of the country?"

ANC MP Pierre Gerber referred to what happened in Namibia just before that
country's independence, when uncut diamonds were similarly exported to be
stockpiled in London, in what the MP called "a scorched earth
policy".

The committee will consider the possibility of legal action against the company
to recover the unpaid levies. The levies arise from clauses in the Diamond Act
that require that gems be first offered to local polishers or cutters before
being exported. Offering the diamonds locally allows the diamonds to be
exported free of the 15 percent levy.

But Catinka Smit of the litigation department of the SA Revenue Service told
the committee that the law was very imprecisely drawn. It did not, for example,
specify in what way or how often the diamonds should be offered locally. Nor
did it prescribe what form an agreement to export should take. It could even be
a simple oral agreement, she said.

The director-general of minerals and energy, Sandile Nogxina, told MPs that the
imprecision of the act encouraged the government to draw up a new bill that
would tighten up the law. That bill, which was first to be called the
Beneficiation Bill, has now taken the form of the Diamond Export Levy Bill
before parliament.

The bill lays down specific terms under which uncut diamonds should be offered
to local cutters and polishers.

De Beers spokesperson Tom Tweedy said uncut diamonds were exported when an
equivalent amount of diamonds were imported, and when the diamonds themselves
were not of sufficient quality or size to make it worthwhile cutting them here.
"Local cutters are more expensive than those in India or Asia."

He later said: "De Beers keeps a record of its agreements and we are happy
to assist the board should it require copies of agreements that we have."
An agreement in section 59 of the Diamond Act "has been an evergreen
agreement, which is reviewed annually by passing a resolution, unless there are
material changes in any of the terms or technical details".

This had happened last year, when particular types of diamond were added to a
section that deals with specials, which are diamonds of a colour, size or type
of a higher value reserved for South African diamond cutters and not
exported."